On March 11, President Biden signed the latest major stimulus package, the $1.9 Trillion American Rescue Plan Act, into law. The Act includes funding of about $350 billion for state & local governments, $130 billion for K-12 schools, $40 billion for colleges & universities, and more than $75 billion for COVID-19 testing and vaccine support. Also included are about $15 billion for targeted EIDL grants, $28.6 billion for the restaurant industry, $15 billion in grant money to the airline industry, and $8 billion for airports.
The third round of coronavirus relief legislation is intended to offer economic aid to businesses and self-employed, but also includes additional direct payments to and other forms of tax relief and credits for individual taxpayers. Key tax provisions have been outlined below.
Businesses & Self-Employed
The Act further extends the Employee Retention Tax Credit (initially enacted as part of the CARES Act) through the end of 2021 and has been expanded for certain start-up businesses that were previously not eligible. The credit is a refundable payroll tax credit available to businesses that were subject to a government shutdown and/or have experienced a significant decline in revenues. Please contact our office for assistance in determining if you may be eligible.
Sick and Family leave credits enacted under the Families First Coronavirus Response Act (FFCRA) have been extended to September 30, 2021. Additionally, the Act increases the limit on the credit to $12,000 (from $10,000), increases the number of days a self-employed individual can utilize to calculate their leave equivalent to 60 (from 50), and resets the limitation on the number of days considered for paid sick leave March 31st.
As mentioned earlier, included in the law is funding of $28.6 billion for Restaurant Revitalization Grants for qualifying restaurants or food & drink providers to compensate for lost revenue in 2020. The legislation also clarifies the tax treatment of Economic Injury Disaster Loan (EIDL) and Restaurant Revitalization Grants, stating these are exempt from tax and the exclusion from income would not result in disallowance of any business deductions (similar to current treatment for PPP loan forgiveness).
Another round of stimulus payments are included in the relief package – $1,400 per individual, plus $1,400 per dependent, including qualifying college students and other relatives claimed as dependents. However, the phase-out threshold has been reduced compared with prior Economic Impact Payments (EIP) – previously these were Adjusted Gross Income (AGI) $75-100K for single and $150-200K for married filing jointly (MFJ) taxpayers but have now been reduced to $75-80K and $150-160K respectively. The IRS will utilize 2019 AGI unless a 2020 return has already been filed. Taxpayers have reportedly begun receiving payments as of the week beginning March 14.
The Act makes the first $10,200 in 2020 unemployment benefits received tax-free for taxpayers with AGI under $150,000. For those who have already filed a 2020 income tax return, the IRS issued a statement requesting taxpayers not file amended returns related to new tax provisions until additional guidance is provided.
Student Loan forgiveness that would otherwise be included in income between 2021 and 2025 will be considered non-taxable.
The Earned Income Credit (EITC) was also revised to include special rules for taxpayers without children and adjusts age limitations beginning in 2021, by reducing the minimum age to 19 and removing the maximum age. The phase-out percentage and amounts have been increased, as well as an increase to the threshold for disqualifying investment income.
Significant changes were made to the Child Tax Credit, including an increase from $1,000 to $3,000 for qualifying children under the age of 17, and $3,600 if the child is under age 6. The increased credit amount begins to phase-out for taxpayers with AGI of $150K (MFJ), $112.5K head of household, and $75K single, reducing the credit by $50 for each $1,000 in excess of these limits. The credit will also be available to taxpayers in the form of monthly advance payments, expected to begin July through December 2021. The IRS will be establishing an online portal to assist with establishing the advance payments, which will be reconciled on 2021 income tax returns.
In addition, the dependent care credit has been enhanced for 2021 (only), including making it a refundable tax credit, increasing the limitation on expenses to $8,000 per child (up to two for a total of $16K), and increasing the maximum credit percentage from 35 to 50%. New AGI thresholds have been established, setting an initial phase-out of the 50% rate beginning at $125,000 (previously $15,000) reduced to a 20% plateau at AGI of $183,000. The 20% credit then begins to phaseout for households with AGI in excess of $400,000, reduced to 0% at $438,000.
If you have any questions or are in need of assistance as it relates to the America Rescue Plan Act – or simply need guidance related to taxes or a specific financial or business situation, Contact Us Today!